A Texas title loan is an easy way to get money, even if you have bad credit, since the value of your car is all that matters when it comes to approval on your loan. But since you need to put your car up as collateral to get a title loan, there’s also the risk of the title loan company repossessing and selling your car should you default on the loan.
Wondering how to avoid title loan repossession? The good news is that there are ways to do this even if you don’t have the money to make a full payment on the due date.
When Title Loan Repossession Occurs
First, you should understand when a title loan company could repossess your car and how the repossession process works.
Getting a title loan in Texas requires you to provide the lender with your car title. You must own the car and the title needs to be lien-free. The lender keeps the title while you repay the loan, and then returns it once the loan is paid in full.
To protect themselves, lenders base the maximum amount they’ll loan you on the current market value of your vehicle. Texas doesn’t have any title loan regulations limiting amounts, which means this amount depends entirely on your car’s value and what the lender will give you for it.
You’ll find that most lenders will loan you at most 30 to 50 percent of your car’s current market value so they don’t lose money if they need to repossess and sell your car.
Now, if you borrow a title loan and don’t make your payment, the lender can then legally repossess your car, although you can also make this process easier by turning your car over to them. Many states require that lenders provide a right to cure, which is a certain time period the lender must wait before repossessing the car. However, Texas is not one of them, and the lender can repossess your car immediately after a default.
It may be seven to 10 days before your lender comes to repossess your car. It could be shorter or longer than that. You can’t be sure, but if you’ve defaulted on your title loan, you’re playing with fire and could lose your car.
How to Avoid Title Loan Repossession
There are two ways you can make sure the lender doesn’t repossess your car, and both involve avoiding a default in the first place.
Pay Off Your Title Loan
This is the most obvious solution so we won’t spend much time on it. But it’s always better to avoid a bad situation in the first place instead of trying to figure out what to do after you’re already in trouble.
Before you apply for a title loan, use a calculator to figure out exactly how much of a loan you can afford to repay. You should have a plan for repaying the loan instead of just hoping your financial situation will be better when your payment is due.
Roll Over the Title Loan
This is what most borrowers do when they can’t pay their title loans. It’s not an ideal solution, but it’s better than ending up without a car.
Rolling over a title loan is a term for extending the loan. Instead of paying the entire loan balance on the due date, you pay only the interest and fees on the loan. Then, you’ll start a new term of the same length with all your unpaid loan principal, plus additional interest and fees, which will likely be for the same amount that you just paid.
One of the benefits of title loans is that you have the flexibility to extend your loan like this and pay a lower amount for one term, instead of being stuck needing to pay off the entire balance. The obvious drawback is that you pay more in interest and fees. It’s also very easy to end up stuck in a cycle of debt this way, where you keep paying interest and fees without ever paying any of the loan principal.
You don’t want to end up in a situation where you keep paying money every month just to extend your title loan. Keep in mind that Texas also has a limit of 180 days on title loan contracts, and the standard title loan term is 30 days. If you have a title loan with a 30-day term, you can extend it five times, at most, before you need to pay it off in full.
Stay in Touch with Your Lender
When you’re thinking about how to avoid title loan repossession, the most important thing to do is talk to your lender. They will be able to explain your options to you and help you set up an extension on the loan, if that’s necessary. You’re much more likely to keep your car if you let the lender know about your payment issues in advance.